Options when no 401k offered

[40DayDream]

Hey WCI community,

I was hoping to get some advice on what to do when your employer does not offer a 401k. I googled this topic, but I'm wondering if anyone has better options.  My situation: I'm a resident in my mid-late 20s, single, no dependents, making $60k/yr, just switched from a program which offered a 401k to a another program which does not offer any retirement savings options.   I currently have a Roth IRA which I have been saving $5,500/yr in and also a 401k that I started with my previous hospital, both through Vanguard.   My income is essentially all W2, and I do not anticipate having any 1099 income this year, as I am not allowed to moonlight during my first year in this program.   There is also no HSA plan offered.  I was initially budgeting to save ~30% of my gross income: $458/month for my Roth IRA and another $1,000/month in a company-sponsored plan, but alas, no options for the latter.  According to my google searches, my only option seems to be Roth IRA ($5,500) or traditional IRA ($5,500), which is much less than I was hoping to save in a sheltered manner.  (Also, fortunately, I have no debt/student loans or I would direct the extra savings to that.)  Anyone have any other suggestions?  Am I overlooking anything?  Additionally, should I delay rolling over my "old" 401k so as to not take up IRA space for this calendar year?  Any advice would be much appreciated.

[jfoxcpacfp]

You have 2 separate issues: saving for retirement and saving in a tax-sheltered account. While a tax-sheltered account might be nice to have at this point, the absence of one does not prohibit you from saving for retirement (or for any other goal, for that matter). At this stage in your career, you are in a great position to build up a taxable account because the tax deferral and deduction are not as valuable as they will be in the future. There are numerous benefits of a taxable account:

• Complete choice flexibility - not limited to employer fund choices and a single custodian


• Lower taxes - income is taxed at preferential LTCG and dividend tax rates. 401k/403b distributions are taxed at your highest marginal rate.


• Basis - liquidations will be taxed only on growth


• Stepped-up basis - beneficiaries will inherit at DOD value


• More flexibility - can take funds out at any time without penalty

We sometimes forget that 401k's have been around less than 50 years. People still saved for retirement and other goals before they could do so with tax benefits. Everybody should include a taxable account in their planning strategy, imo, and this is a great time in your life to start one.

[DMFA]

No 401k?  They have absolutely no employer-sponsored plan (403b or 457)?  Dang.

Once you earn on 1099s you can start your own 401k with that, and even have your "employer" (you) "match" beyond the $18k limit (up to 25% earned, max in $53,000)...next year!

There is always one way or another you can get money into a Roth IRA, whether it's put there directly or through the famous "backdoor."

Like Johanna says above, any deductible contribution (e.g. standard 401k) you make now is not worth as much now given your low tax bracket (prob 25%) and would be taxed at probably 25-33% (using today's brackets) in retirement.  In a taxable account, you'd be taxed at the long-term capital gains rates, which are lower than income (currently maxed at 20%).

I'd sit down or teleconference with a planner (there's one right above this post!) and discuss your strategy, but from my amateur perspective, a Roth IRA plus taxable account at this point seems the best way to go.

[The White Coat Investor]

Most residents have more uses for money than money. Options include a Roth IRA, an HSA, a taxable account, paying off debt, and saving up a downpayment. If you moonlight, you can get an individual 401(k) for that.

[40DayDream]

Thanks for the valuable advice!  I will do a Roth IRA + taxable account.